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The biggest investor error, Part 5: The Tunnelblick

The whole truth? D rather not. Selective perception is also in the stock market is a widespread phenomenon.

People are known to admit mistakes. That's not different in the financial markets. Who buys a share, only too happy and uncritically accepts corresponding affirmative arguments or articles. Critical comments or analysts' assessments of this share, on the other hand, are rather distracting and displaced. In this context, one speaks of selective perception.

From a scientific point of view, this is understood as the phenomenon according to which decision-makers do not take into account all available information in the decision-making process. Rather, information is selectively perceived. Which information is taken into account in each case depends on the respective personal ideas, ready-made opinions, needs and expectations.

Expectations difficult to change

For example, if the investor has strong expectations, a particularly large amount of new information will be needed to change or even refute existing expectations. As a result, the high expectations of an investor for a stock may, for example, ignore clear warning signals.

On the other hand, if the prevailing information is in line with individual expectations and existing opinions, they are more likely to be perceived than contradictory information. And if the information situation is not sufficient, the decision maker often independently searches information in order to determine a conclusive overall picture. The reason is obvious: people are basically willing to make the right decisions. If a decision made turns out to be a failure, the person tries to justify the decision with the help of new information.

Ignore as self-protection

On the other hand, if information deviates too much from the existing opinion, it is ignored or not even perceived. This also explains the restraint of the stockbrokers when it comes to realizing price losses.

In a world of inhomogeneous expectations and needs, the described selective perception ultimately leads to the same information being perceived differently by different people, despite the same information base.